Dolby Q1 Revenue Rises, But Company Downgrades Fiscal-Year Forecast

Dolby Labs lowered fiscal 2011 forecasts in its Q1 earnings call last week to $930 million to $970 million total revenue, and $750 million to $780 million for licensing revenue, mainly because of reduced independent software vendor (ISV) revenue and “lower expectations for PC unit growth,” said Murray Demo, chief financial officer. Revenue for the quarter was $242.7 million, up 10 percent year-over-year and 7 percent sequentially. Licensing revenue for the quarter was $188.2 million, up 14 percent year-over-year and 5 percent sequentially, driven by advances in the consumer electronics, broadcast and PC markets, Demo said.

PC revenue grew 9 percent year over year, Demo said, but dropped 9 percent sequentially from lower ISV revenue. On the broadcast side, declines in set-top box revenue offset gains in global TV unit growth and TV attach rates in Europe, he said. In the CE business, revenue jumped 17 percent year-over-year and 35 percent sequentially, driven mainly by Blu-ray and DVD back royalties, Dolby said.

Dolby said its first quarter revenue from other markets, including automotive, gaming, mobile and the Via licensing program, grew 21 percent year-over-year and 9 percent sequentially, year-over-year gains coming from the automotive, gaming and Via segments. Sequential increases were driven by gaming revenue, the company said.

Looking ahead, CEO Kevin Yeaman cited the recent CES and the weight given to the growing online content distribution model. He said Dolby is well-positioned to benefit from current and future growth in the connected online distribution market, a “significant opportunity for Dolby.” The company can “improve the quality of experience across a much larger universe of portable devices,” he said, including netbooks, tablets and mobile phones on the hardware side, and delivering a “premium playback experience on the content side,” where content creators are faced with numerous delivery platforms, services and devices. The current online media consumer experience “is inconsistent or significantly degraded,” he said, giving Dolby an opportunity to provide tools and technologies “leading to greater connectivity across various playback devices.” He cited smartphones from Nokia and HTC with HDMI outputs that are “compatible with the existing home theater ecosystem,” where Dolby has a solid footing.

On the content side, he said, Dolby has made “great progress” with content providers including Netflix Apple, Vudu, Sonic and Amazon, which use Dolby’s multichannel formats to deliver 5.1 surround sound.

Yeaman also mentioned new Dolby Mobile and Dolby PCEE4, technologies to create an “immersive experience” on a mobile handset, PC or tablet. He said Dolby Mobile is embedded in more than 60 mobile handsets and Lenovo recently incorporated PCEE4 in some of its notebook PCs. He called PCEE4 a technology applicable to “emerging form factors such as tablets,” on which consumers want higher quality media playback.